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Even with growing revenues, Palo Alto braces for budget cuts

Original post made on Mar 5, 2019

Despite growing employee salaries, rising pension costs and general uncertainly over the broader economy, Palo Alto officials are feeling increasingly chipper when it comes to the city’s financial health, thanks in part to a new forecast that shows strong growth in sales- and property taxes.

Read the full story here Web Link posted Monday, March 4, 2019, 9:53 PM

Comments (15)

19 people like this
Posted by Mom
a resident of Palo Alto High School
on Mar 5, 2019 at 6:47 am

Because times are good, we need to fully fund the pensions and save for a rainy day. No (very little) additional spending until that is done. And please do not increase staff (and pension liability).


25 people like this
Posted by Pensions, Pensions
a resident of Old Palo Alto
on Mar 5, 2019 at 8:53 am

Pensions are the biggest cost for any city. Pensions will bankrupt most cities because employees are living longer and paying 90 percent of employees salary after retirement. Palo Alto needs to start looking at an alternative employee retirement fund.


10 people like this
Posted by Redmond Turk
a resident of Gunn High School
on Mar 5, 2019 at 10:53 am

Redmond Turk is a registered user.

Outsource, outsource, outsource everything that is practicable.
That way we run much more efficiently via competition.
And we don't incur generous, open-ended pension liabilities.


7 people like this
Posted by Annette
a resident of College Terrace
on Mar 5, 2019 at 11:02 am

Annette is a registered user.

If you were not at last night's meeting or did not watch it, I suggest watching the video. Our mayor made some remarkable comments about Palo Alto's pension liability. In short he informed the gathered that PA pensions will be fully funded, are safe, and that job seekers should, therefore, choose Palo Alto over other cities. Alrighty!


9 people like this
Posted by Wayne Martin
a resident of Professorville
on Mar 5, 2019 at 11:22 am

> Pensions are the biggest cost for any city.

Actually, salaries are a city's largest cost.

Even though the City is the employer of record and is ultimately responsible for a retiree's pension--CalPERS will likely provide the bulk of that pension.


2 people like this
Posted by Nat
a resident of Midtown
on Mar 5, 2019 at 1:30 pm


I don't understand from reading the article how pensions are to be fully funded. Will someone explain?


4 people like this
Posted by Wayne Martin
a resident of Professorville
on Mar 5, 2019 at 2:29 pm

> I don't understand from reading the article how pensions are to be fully funded.

Let me try.

Every year CalPERS requires that the City "contribute" a percentage of the payroll for the SAFETY employees and the MISC(Miscellaneous) employees. This percentage varies from year to year--generally going up yearly. Additionally, CalPERS provides the City with a fixed dollar amount to pay down its Unfunded Liability (often referred to as the UAL). As I understand it, the City may choose to underfund these CalPERS "charges", which will result in higher contributions in the future.

The UAL is currently somewhere around $400M--so unless the City find a sugar daddy to pay off the UAL, or pass a parcel tax to pay for employee retirements--it can't "fully fund" its pension obligations. It can pay CalPERS' charges fully for the year, but this will not change the long-term pension obligation of the City very much.


2 people like this
Posted by Lowdown on penisons
a resident of another community
on Mar 5, 2019 at 7:45 pm

A simple explanation of pensions. Both the city and employee contribute to the employee’s pension. The employee’s contribution is used first after the employee retires. All of the employee’s contribution is used up in roughly 10 years. After that, the city must pay the full pension until the employee dies. With employees now living longer, you can see why pensions are never fulling funded. Also, after the employee dies, his or hers spouse still gets the full pension until they die.
Many of my co-workers that retired from PA are living well into their 80’s after retirement in their 50’s.


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Posted by kneils
a resident of Mayfield
on Mar 5, 2019 at 9:35 pm

so the cost is about $3400 a yer per resident (include kids and adults).
Not to bad. The problem is the expected growth rate, at 6% a year, unless
property tax growth continue, this is not going to happen.
Also, note that the infrastructure needs attention. Time to reduce payroll and
renegotiate those pensions.


1 person likes this
Posted by chris
a resident of University South
on Mar 5, 2019 at 9:51 pm

The point is that the city is increasing its contributions to the pension fund over time to reduce the unfunded liability, rather than allow to stabilize or increase.
The pension will not be fully funded for some time.


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Posted by Wayne Martin
a resident of Professorville
on Mar 6, 2019 at 11:13 am

> After that, the city must pay the full pension until the employee dies.
> With employees now living longer, you can see why pensions are never fulling
> funded. Also, after the employee dies, his or hers spouse still gets the full
> pension until they die.

This is not factually correct.

Unless CalPERS were to cease to exist, the City never pays the full pension of a former employee, now retired. CalPERS has that responsibility with the City being the backstop in the case of CalPERS failures.

As to benefits for surviving spouses--there are too many options available to CalPERS members regarding survivor benefits to discuss here. The link below outlines those options:

Web Link


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Posted by Wayne Martin
a resident of Professorville
on Mar 6, 2019 at 11:16 am

> The point is that the city is increasing its contributions to the
> pension fund over time to reduce the unfunded liability, rather
> than allow to stabilize or increase.

Sadly, we don't know that this year's attempts to pay a little more into "pensions" will continue into the future. In the past, the City (City management and Council) have shown little interest in the pensions issue. The last Council election cycle saw virtually no discussion about the financials of the City. It's hard to believe that very many of those on the Council today could provide a coherent discussion of the pension obligations of the City.


1 person likes this
Posted by Wayne Martin
a resident of Professorville
on Mar 6, 2019 at 11:52 am

> In short he informed the gathered that PA pensions will be fully
> funded, are safe

Kind of hard to understand why anyone would rationally make such statements. Palo Alto's pensions are the responsibility of CalPERS, although the City is the employer of last resort. CalPERS, while under considerable scrutiny because of past management practices, has never been accused of being on a path to insolvency. Questions about future management and its belief that it can continue to manage its vast pool of assets with a return of 7.5% a year have been asked recently, and will necessarily be asked in the future. There have been a large number of articles in the media nationally about pensions are "unsustainable", but never "unsafe". A recent CA Supreme Court decision suggests that Cities can reduce some secondary pension benefits, but the core question as to whether Cities to reduce pension benefits after the fact has not been taken up by the High Court. The US Constitution suggests that contracts are inviolate and pensions have been considered as contracts by all lower courts. Hence, all pensions are "safe"--regardless of what the PA Mayor has to say about it.

The problem that Palo Alto, and all cities across the country are seeing is that with pensions linked to salaries--as the salaries of government employees now exceed those in the private sector, the member agencies' contributions to these pension funds has grown from 2-3% of the annual agency budget to upwards of 30% in some cases. These increased "contributions" are squeezing out other services that municipal (and agency) budgets have been funding (like road repairs).

Some agencies have chosen to issue "pension bonds" which shift the cost of the pensions from the Cities directly to the property tax payers--but not all residents equally.(Santa Clara County issued such bonds in the past). Unfortunately, the interest for the bonds increases the real cost of pensions on the people who ultimately have to pay them--an increase that never seems to be accounted for when trying to understand the cost of pensions. A couple years ago, Palo Alto decided not to issue pension bonds, thankfully.

Suggesting that Palo Alto's pensions are "fully funded" may be true this year (maybe?), but what proof does this Mayor have that CalPERS obligations will be fully funded in perpetuity? Unless the Charter is amended to force the Council to do the right thing where pension obligations are concerned--then a future Council can easily continue to underfund its obligations in order to spend general fund money on other things.

Suggesting that Palo Alto pensions were "safe" suggests that there might have been suggestions that Palo Alto pensions were "unsafe". No such suggestions have ever been made in any public venue. Anyone making such suggestions clearly doesn't have much of a grip on reality. CalPERS current market value of its assets is over $350B (subject to the vagaries of the markets where these assets are allocated).

Given the comments about pensions in this thread, it's conceivable that there are those in the community who have never taken the time to understand the complexities of the pension system. Very few working for the City have that knowledge. Former Councils certainly did not.

The last comment about "pick Palo Alto" seems to provide a clue as to why this selected Mayor might have said these things about Palo Alto's pensions. Recent articles in local media have pointed out that Palo Alto has a somewhat higher than "normal" vacancy rate in its SEIU employees. No doubt trying to pander to the SEIU, this Mayor has decided to promote Palo Alto as a "safe employer" for employee benefits, which now are in the range of 60% of salary.

It's a shame that no matter whom we elect, these folks quickly walk away from the voters and simply become protectors of "the status quo".





1 person likes this
Posted by Phil
a resident of Mountain View
on Mar 6, 2019 at 6:23 pm

To Wayne Martin,
According to CalPERS most retirees, over 95% chose option 2 or 2w which states that if a retired employee dies, their spouse will receive the full yearly pension until they die. I chose this option for that reason. You received alitlle less per month, but the pension will be there for your spouse or significant other.


Like this comment
Posted by He must go
a resident of Old Palo Alto
on Mar 12, 2019 at 8:13 pm

You know where you can save even more money get rid of that building official George Hoyt this guy came from 4 leaf as a contractor and what company has the largest contract with the city of Palo Alto 4 LEAF of course. Has anyone looked into the number of people who are from 4 leaf ? Inspectors, plan checkers front counter staff in the development center of they are the only company working in the development center who has oversight of this why don’t the city outsource his job he’s making 200 k plus per year.


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